The vacation rental industry is growing rapidly. Increasingly, downtown Austin condo owners are listing their units on services such as Homeaway as opposed to offering units in the traditional long-term rental market. With rates of $1,000 – $2,000 per week, a few vacation renters can make a condo owner happy.
But with short-term rentals come hotel tax obligations. Officially, any unit that is rented for fewer than 30 consecutive days and more than $2 / day (Really! $2 / day!) must charge and pay the full hotel tax. Currently, the hotel tax is a very significant 15% composed of two portions: 6% to the state and 9% to the city. On a $2,000 weekly rental, that is a $300 tax bill.
The City currently believes that many downtown Austin condo and home owners are not paying the tax that they owe. In a tight budget year, they are looking for additional sources of revenue. As a result, the City’s audit department is currently conducting an investigation of how much unpaid bed tax is being generated through short term vacation rentals. Once the results of the probe are in hand, the City os evaluating a code amendment related to short-term residential rentals. Supposedly, the probe was initiated after a series of neighborhood complaints from Austin residents opposed to neighborhood vacation rentals.
For most downtown condo owners, the tax doesn’t matter as very few units are currently listed on the vacation rental market. For those who do rent units, the tax is significant. For many, awareness of the charge may be the key obstacle to compliance. We’ll see how this investigation evolves. . . .